Hurdles stall Turkey’s privatisation effort
Turkey’s troubled privatisation programme seems to have a fresh lease of life with the latest government decision to sell a majority stake in the country’s giant telecom monopoly.
On 12 December, an official decree informed that 51% of the government-owned Turk Telecom would be up for sale by 31 May 2004.
Turkey‘s ambitious privatisation plan has run into trouble in recent months with several major sell-offs being postponed and many others battling court cases.
The country’s industrial sector has blamed the government for its lack of determination in tackling the issue.
Tuncay Ozilhan, the chairman of the country’s leading business association, TUSIAD, slammed the government for “failing to live up to its promises” over privatisation.
Serious trouble
“The 2003 privatisation plan is in serious trouble,” said a spokeswoman for Istanbul-based brokerage, Garanti Securities.
“The government was expecting a cumulative total of $4 billion from sell offs this year. It will be impossible for them to achieve anywhere near this now,” she added.
The industry also feels that the Erdogan government is playing electoral politics with the privatisation programme. It points out that with local elections coming up next year, privatisation will harm the ruling party’s electoral prospects.
“Privatisation will hit jobs,” says a spokesman for industry analysts Global Securities in Istanbul.
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Erdogan government playing |
With many state industries thought to be overstaffed, the prospect of any of them falling into private hands would lead to many employee layoffs, which would translate into lost votes for the ruling party.
Privatisation has been a major plank of the government’s IMF-backed economic programme. It has also been a key tool in cutting government expenditure and in realising the kind of revenue necessary for Turkey to tackle its serious debt problem.
A number of major state-owned industries are up for sale. First to complete the bidding process was Petkim, the state petrochemicals industry.
However, the winning bid came from a company owned by the Uzan family, one of Turkey’s most notorious business groups.
Soon after they won the tender, a series of court cases and company seizures occurred, making them unable to fulfil their bidding commitments.
Cancellations
The Petkim sell-off was then cancelled. New bids have now been invited, with a deadline of 30 January 2004.
Next was the sale of the state alcohol and tobacco industry, TEKEL. This had been divided into two parts – the cigarettes and tobacco products section, and the alcoholic beverages section.
At the end of August, TEKEL held a 58% share of the cigarette market in Turkey – a country where about 44% of the population are smokers. The alcohol section also held a monopoly on production of raki, the aniseed-flavoured national drink.
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“The government had been expecting to make $2-3 billion from the sell off of TEKEL. They greatly overestimated interest” spokesman, |
“The government had been expecting to make $2-3 billion from the sell off of TEKEL,” a spokesman from Global Securities in Istanbul said. “They greatly overestimated interest.”
In the end, the top bid – from Japan Tobacco International – was only $1.15 billion. The Privatisation Authority cancelled the offer, saying that the bid was too low for them to accept.
Meanwhile, the alcohol division sale had gone through successfully – or so it first seemed.
After agreeing to a $292 million bid from a consortium of local companies, in early December, an Ankara court granted an application from TEKEL workers’ union, Tek Gida Is, to freeze the privatisation.
They had lodged a complaint that the sell off broke constitutional arrangements over monopolies as it would open the market to competition.
Similarly, the sale of the state petroleum refineries, Tupras, is lagging way behind its original schedule.
A 65.76% stake is up for offer, with two bidders in the running – Efremov Kautshuk GMBH and Turkish Anadolu Girisim Grubu. The deadline for bidding is 13 January 2004. It was first scheduled for 2001.
Others, such as Turk Telekom and state carrier Turkish Airlines, should have been sold off long before that.
Security issues
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Turkish military apprehensive |
“Many of these enterprises were scheduled to be sold off in the mid to late 90s,” says an Istanbul-based analyst for Bender Securities.
“Now the climate is not right and Turkey will never raise the sort of money that was being discussed a few years ago. Even at this stage it has not put all the infrastructure for privatisation in place,” he adds.
Turk Telekom, in this context, looks vital, as it currently has a fixed line monopoly in the country. However, under new legislation, this is due to end on 1 January 2004.
“Turk Telekom increased its profitability by 27% and its revenues by 25% in the first 10 months of this year,” Prime Minister Recip Tayyip Erdogan told reporters on 12 December, publicising the sale.
Earlier efforts to sell the giant had failed largely because the government would not offer a majority stake.
The country’s powerful military was worried that the nation’s telecommunications system could fall into foreign hands – a point made all the more troublesome by the fact that the military used Turk Telekom facilities for itself.
Yet, without demonstrating some success in selling off its state industries, international funds may continue to regard Turkey with some suspicion.
Competitive pressures
“There’s no available ground for our companies to succeed in an internationally competitive environment,” says Tanil Kucuk, the chairman of the Istanbul Industry Chamber.
“It’s impossible to increase our competitive power before improving our investment environment and increasing investments,” he continues.
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“It could be much worse, but I think people will wait and see” spokeswoman, |
This places a major pressure on the government to get things moving, if it is to satisfy global markets – and its own.
“If they had been able to meet their targets this year,” said the Global Securities spokeswoman, “that would have sent a very positive signal to the market that the government is very serious about meeting its privatisation goals”.
Instead, many seem to be wondering if Erdogan’s administration is ready to bite the bullet on sell offs.
However, there are also some hopeful signs. The privatisation of the national lottery is also scheduled for the coming year, with many market analysts predicting great interest.
Meanwhile, the privatisation of electricity plants is also being accelerated while Turkey’s other economic indicators are showing good signs. An end of year target of 5% growth seems likely to be met, as will an inflation target of about 20%.
“It could be much worse,” says the Global spokeswoman. “But I think people will wait and see. Still, if things remain on a stable level generally, the government will have more time to get the programme going – but get it going they must.”